Key Ethical Considerations—Second Quarter 2020
Key Ethical Considerations for Forensic Accountants/Expert Witnesses
By: Karen Kaseno, CPA, CFF, ABV, CVA, MAFF, CFE
NACVA Ethics Oversight Board
When you are asked by an attorney or a client who is involved in a dispute that requires your forensic accounting, business valuation, or other litigation expertise and experience, that client is looking for some answers. These answers might be in the form of a written report, an opinion that is expressed at trial or in another setting, or recommendations on how to proceed. Most of the time you are being retained by one party in the dispute; sometimes, in some jurisdictions, we are retained as joint experts/consultants for both sides of the dispute.
Regardless of who hired you and what final product you are expected to provide, there are certain ethical considerations you should think about. If you are a NACVA member, then these ethical responsibilities are outlined in the NACVA Professional Standards.
The Basic Ethical Principles Applied to Forensic Accountants/Expert Witnesses
Basic Considerations of Responsibilities and Maintaining Your Credibility
For a forensic accountant/expert witness, in addition to our expertise, our credibility and reputation is what clients and judges rely upon or consider to decide the weight they can assign to our analysis. This means it is a good idea to conduct yourself in a way that would reflect well on others in our profession. We have a responsibility to provide services to our client but, more importantly, we have a responsibility to conduct ourselves with professionalism and in a way that would be viewed as appropriate.
Additionally, we may not have a direct responsibility to the public but we are participants in the legal process and we should respect that process. We are not formally officers of the court but we might consider conducting ourselves in a way that shows the highest level of respect and commitment to providing analysis/conclusions to the court and/or our clients that is useful and reliable. Knowing and following the rules of the court and appearing as a professional, reliable participant in the legal process is important. Once judges and attorneys in your area get to know you, they will expect real analysis and real answers from you to help them understand the financial issues in the case.
As an example, you might be the expert in a very emotionally charged divorce. Your client and his/her attorney have gotten embedded in the fight; calling each other names and personally insulting the other side. While it is not necessarily our role to mediate or to try to talk reason into our client/attorney, it is important we conduct ourselves professionally and perhaps refuse to engage in the personal insults and name calling. It would also be helpful to try to return the discussions back to facts and real numbers, and help your client understand the important issues that move them away from personal attacks and towards settlement.
There are going to be assumptions and legal principles the attorney/parties may provide that you will rely upon in your work. Usually, these are facts/assumptions that are outside our area of expertise and not something we can state as our own knowledge or opinion. Our reliance upon certain assumptions may yield our ultimate calculations and opinions significantly different from the expert on the other side. Often this appears as if we might be hired guns or an advocate for our client. We are always an advocate for the work we have done and our opinion. The fact that sometimes our opinion is based upon assumptions provided to us does not change the faith we have in our opinions.
Integrity and Objectivity (NACVA General and Ethical Standards IIA)
The NACVA rule states, “A member shall remain objective, maintain professional integrity, shall not knowingly misrepresent facts, or subrogate judgment to others. The member must not act in a manner that is misleading or fraudulent.”
But what is integrity? One definition is “integrity means following your moral or ethical convictions and doing the right thing in all circumstances even if no one is watching you. Having integrity means that you are true to yourself and would do nothing that demeans or dishonors you.”
So what does integrity mean for a forensic accountant/expert witness? Certainly, this can mean different things to different people. But here are some considerations:
- Applying your training, knowledge, and analysis to formulate your conclusions or opinion regardless of the side that you represent. From a practical standpoint, having differing opinions on the same issue can come back to haunt you and could damage your credibility.
- There will be cases where assumptions about facts and evidence outside of your areas of expertise are given to you to accept as true for your calculations. If these assumptions are outside of the realm of possibility and you know they are not right, then discussing this issue with your client before putting your conclusions together might be a good idea.
- Doing the right thing might be difficult when you are working for one side and something comes up that is detrimental to your client’s side of the case. An example would be finding an error in paperwork or something that has already been produced by your client in the case.
What is objectivity? “Objectivity is a state of mind; a quality that lends value to a member’s services. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest. Independence precludes relationships that may appear to impair a members objectivity in rendering services.”
Some considerations when acting as a forensic accountant/expert witness:
- If you are trying to perform services for a friend or relative, it is difficult to be objective and independent.
- Consider having a conflict system in place so you will not represent friends, family, previous clients, etc. that could represent a conflict of interest or could interfere with your objectivity and impartiality.
- Consider turning down a case if you cannot be impartial and objective with your work. This could be because of the issues in the case, the parties involved in the case, or some other reason why you cannot be objective and impartial.
- Remember that the appearance of independence is as important as actually being independent. Something to think about is if you have a large outstanding bill on a case and you are rendering a report or providing your opinion at trial, you could be perceived as having a vested interest in the outcome of the case.
- If you have too many cases with one attorney or one firm, it may appear as if your independence and impartiality may be impaired. If you are performing excellent work, you will have attorneys and firms that want to use your services. Consider taking cases on the other side of the firms/attorneys that use you a lot.
Due Professional Care (NACVA Professional Standards IIC)
The NACVA standard states, “A member must exercise due professional care in the performance of services, including completing sufficient research and obtaining adequate documentation.”
This is the other important consideration for a forensic accountant/expert witness. The due professional care principle states that a person should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability.
Due professional care requires professional services be rendered with competence and diligence. It imposes the obligation to perform professional services to the best of a member’s ability, with concern for the best interest of those for whom the services are performed and consistent with the professional’s responsibility to the public (which could be viewed as clients and triers of fact).
Competence represents the attainment and maintenance of a level of understanding and knowledge that enables a person to render services with facility and acumen.
Considerations for purposes of this article:
- Before accepting an engagement, make sure you are competent to perform the services being asked. NACVA Professional Standard IIB on Professional Competence states, “A member shall only accept engagements the member can reasonably expect to complete with a high degree of professional competence. If a member lacks the knowledge and/or experience to complete such engagements with a high degree of professional competence, the member is not precluded from performing such engagement. In such instance, the member must take steps necessary to gain such expertise through additional research and/or consultation with other professionals believed to have such knowledge and/or experience prior to completion of such engagements.” If you do not have the knowledge or experience to perform the services, then consider not taking the assignment, or consulting with an expert that can help with the assignment. A good example of this is the request to perform a business appraisal when you have no business valuation training or experience. If you are not competent to perform the services, then consider declining the engagement.
- Getting adequate training and experience prior to marketing for a certain type of work would be advised. Work under a mentor or a supervisor to obtain the experience necessary to perform the tasks competently.
- Make sure after you get the initial training and experience, that you stay current with continuing education.
- You need to be diligent in performing the work assigned to you. Make sure you do enough work and ask for enough information for you to form your opinion. An example of this would be to dig deeper and ask for more information and documentation on items that look suspicious on the financial statements or tax returns provided to you. If there are line items that look odd, ask for more information. Even if this is not helpful to your client. If it is detrimental to your client, most of the time it is better to know this and discuss it with your client before it is uncovered by the other side.
- Do not subordinate your judgement or your diligence to someone else. Do not let someone else tell you what to say. Your opinion/conclusions need to be based upon your work, your judgement, and the diligent work you performed.
- If you are relying on the work performed by others, you should adequately supervise the preparation of that work. Due care requires you plan and supervise adequately any professional activity for which you are responsible. This is a problem when a client wants you to rely upon spreadsheets or their analysis without testing or making sure the data is correct.
- If you have staff helping you on a case, consider adequately supervising this staff. The attorney on the other side may challenge your report or opinions if it appears your staff did all of the work and that they were not adequately supervised.
This article was not meant to be an all-inclusive list of ethical considerations for you when you are working in this area. It was meant to remind you of ethical principles to consider when doing your assignments in an attempt to help with the quality of your work, and the preservation of your reputation and credibility to your clients and the triers of fact.